Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future

"A ‘91-style meltdown is almost inevitable." So says Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, discussing the imminent economic catastrophe that is sure to engulf Belarus following the surprise devaluation of the country's currency by over 50%, which we announced on Monday. "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production" Moiseev concludes. Ah: "privatization" as Greece is about to learn, the lovely word that describes a fire sale of assets to one's creditors, courtesy of a "globalized" new world order. Ironically, this is precisely the warning that will be lobbed at each country in the developed world, as the global race to devalue currencies, first against each other on a relative basis, and ultimately against hard currencies, or on an absolute basis, as the world realizes that there simply is not enough cash flow to cover the interest payments on a debt load, in both the public and private sectors, that continues to rise at an astronomic rate, even as the world prepares to exit from the latest transitory, centrally-planned bounce in the Great Financial Crisis-cum-Depression that started in earnest in 2007 and has been progressing ever since. Ultimately, Belarus will succumb to hyperinflation, as will each and every other government seeking to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production,” VTB’s
Moiseev said. The ruble will slide to 10,000 per dollar, he
added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.

First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.

And here are some additional observations from Bloomberg on the country that everyone in the media continues to ignore, yet which will very soon be the model for virtually everyone else engaging in central planning warfare.

The Belarusian central bank let the managed ruble weaken by 36 percent versus the dollar on May 24 as demand for dollars and euros from importers and households threatened to derail an economy already laboring under a current-account deficit equal to 16 percent of gross domestic product. Russia and other former Soviet partners last week agreed to give Belarus a $3 billion loan and urged President Aleksandr Lukashenko’s government to sell $7.5 billion of assets to replenish the state’s coffers.

Finance ministers from former Soviet nations agreed in Minsk on May 19 to give Belarus up to $3.5 billion over three years, with the first $800 million payment expected in the week after a separate meeting on June 4, Russian Finance Minister Alexei Kudrin said in Moscow yesterday.

The Nationalnyi Bank Respubliki Belarus set its official dollar-ruble rate at 4,931 for today’s trading, from 3,155 on May 23, according to its web site. Trading of foreign currency between companies, banks and individuals needs to stay within a 2 percent range of the daily rate, the regulator said May 23, when it announced the devaluation and reintroduced restrictions lifted on the interbank market on April 19 and for households on May 11.

Devaluing the currency will only worsen the situation for Belarus, VTB’s Moiseev said.

“The main problem is that the economy produces goods which consist of little else than a combination of imported spare parts,” he said. “So devaluation only makes things worse.”

Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products.

The catalyst for the country's imploding economy: socialism and price controls. Sound familiar?

Lukashenko reintroduced controls on prices and the currency and re-nationalized some companies and infrastructure after coming to power in July, 1994, on a platform of “market socialism.” The nation’s economy returned to growth in 1996, according to World Bank data.

At the Minsk Refrigerator Plant Co. shop in the capital today, about 20 people queued in drizzling rain to use their rubles to buy fridges. While the shop didn’t open on the day of the devaluation, most of the models in the store already had ‘Sold Out’ stickers on their doors.

“I came on Saturday and it was a nightmare, the store was stormed by people who wanted to spend their rubles because of rumors about the devaluation,” said Nikolay, a 74-year-old pensioner who declined to provide his last name. His entire savings of 6 million rubles now buy one fridge compared with three before the devaluation, he said.

The people are not happy...

The devaluation lifted the local price of automobile fuels as much as 24 percent, according to Belneftekhim, an industry group for the country’s oil sector. Last night, about 50 people protested the price increase in the car park of a Minsk hypermarket.

“I can’t describe how I feel without using obscenities, this is all our government’s fault,” said Sergey, a 32-year old attending the protest who works for a computer importer. “The whole world tells them, guys, you have economic problems, you should do something, and all they did was live off getting more and more loans.”

Who can blame the country if it devolves into civil war: as a result of Monday's decision the average salary was "1.6 million rubles
in April, according to the government statistician. Converted
into dollars, it fell to $325 after the May 24 devaluation, from
$507 a day earlier, using central bank exchange rates."

Naturally, the IMF wuz here:

Both the IMF and the EBRD have blamed Lukashenko’s spending before last year’s presidential election for much of the economy’s woes. Lending was increased by 38 percent last year and public-sector salaries rose by about 50 percent, the Washington-based IMF said in a March 9 report.

Belarus got a $3.5 billion bailout loan from the IMF during the global credit crisis and the country has more than $2 billion of ruble and dollar debt outstanding. Foreign-currency reserves hit a 1 1/2-year low in March.

“The ruble is probably still too strong, but devaluation hurts the average consumer through imported inflation and deteriorating purchasing power,” Sanna Kurronen, an economist in Helsinki at Danske Bank A/S, said by e-mail yesterday. “There is really no easy way out of this economic distress and the only way is to do a major reform in the country.”

Here comes hyperinflation...

The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.

“We have become paupers,” said Tatiana, a 70-year-old woman in the line who also declined to give her last name. “We have been squeezed into a corner by this devaluation.”

Belarus’s dollar debt has been buoyed by news of the Russian loan, with the yield on the government’s debt due 2015 dropping four basis points to 9.881 percent by 6:35 p.m. in Minsk, the lowest since March 14. Dollar-denominated notes due 2018 yielded 10.38 percent, down six basis points.

The country has raised its refinancing rate twice since April 20 to 14 percent, the highest in Europe. The central bank also stopped selling foreign currency out of its reserves in March and will continue to stay out of currency markets, spokesman Anatoly Drozdov said by phone in Minsk yesterday.

...And following that, complete socio-economic collapse

Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added.

Unemployment was 0.7 percent in December, according to government data. Inflation accelerated to 14 percent in March, the fastest since April 2009 and more than neighboring Russia’s 9.6 percent in April. Imports into Belarus exceeded exports by $7.3 billion at the end of 2009, according to the latest annual data available.

Russian media are creating a “flurry” of speculation about the nation’s asset sales so they can “make good at our expense,” Lukashenko said today in Astana, the capital of Kazakhstan, according to comments reported by state news agency Belta. “But we will not throw anything to anybody for nothing.”

Note the parallels to Greece, which would follow the same fate if it were to make the choice of returning to the drachma.

Alas, there is nothing left to add: this is the future, and it is coming to a developed country near you.

1) Govt has zero expenditures and raises taxation, will this inflate or deflate the economy?

2) Govt prints up $100million in fiat, and then buys a stockpile of missiles from a contractor with said fiat. inflation or deflation?

3)Said $100million worth of missiles gets fired off at most recent evil dictator. inflation or deflation?

4) Velocity of money..... isnt this the greatest issue relating to inflation/deflation? If there is minimal velocity then dont prices deflate to capture the limited available movement of money? If money is freeflying then dont prices inflate to capture an excess of money flow?

5) didnt the QEs simply set up a hyper environment because the fiat has yet to genemove with substantial velocity. That is to say QE money velocity has yet to equal money velocity pre-QE.... or has it?

Honestly I'm a noob to this, only begun studying any type of economics after finding this website reading up on fukushima because I saw in March the pacific ocean was about to die. Any info would be helpful because I think most of the inflation/deflation arguments I've been reading neglect the dynamic nature of the money supplies.....

Couple more questions....

Person works and gets paid direct deposit. Pays bills online, buys groceries and other items with a debit card, never carries cash

6) Is this person living with and using M1 or M2 money? does it matter?

7) Can there ever be a run on the banks in the digital money age we live in? If so how does it pan out? Bank has no physical cash to acquire but walmart still takes and runs the card.... insolvent but the FED can back them overnight?

For your first 5 points, yes, that's basically what the Austrian train of thought is here. A corollary is the budget deficit and national debt. Right now it seems like , hey we can pay 3% interest so lets load up as much debt as we want, its 'only' 3%. The problem is eventually you get to a point where there's so much debt that a single basis point increase takes away every last $ in tax revenue in interest expense. Congress seems to be trying to hit that PVBP (Price value of a basis point) target of $2 trillion.

So the whole thing with QE etc right now is its a loaded gun. Inflation has been 'tame' because of the low velocity of money. But the scene has been set. The instant the velocity picks up the Fed won't be able to pull back (by raising interest rates) as they'd like to believe. Why? because it will instantly destroy the value of their holdings (Maiden Lane II). Now you can argue they can 'hold-to-maturity', but they can't both hold-to-maturity AND withdraw liquidity. They will have to SELL their assets at such time to 'withdraw liquidity' (actual cash) from the market, but they've injected $600bn in QE2 at 100, and if they try to withdraw those exact same assets at say 90 (since rates have increased) that's still $60bn that's sitting out there that they cannot control. But by now the velocity has picked up so that $60bn is $600bn in itself. (and remember this is assuming the Fed can sell ALL those assets at 90c instantaneously).

The thing is no one knows how long this spring can stay coiled. 3 years? 5 years? 2months?

Lastly, actual cash does matter. Although banks just use digital debits/credits on a daily basis, they do still net settle (not sure the exact timing anymore). That's why Brinks still drives around with hundreds of millions in cash.

With WaMu we didn't see a physical run on the bank, but walmart will NOT be able to run the card. Your debit card (or even credit card) will be REJECTED at the point of sale since the bank is insolvent.

Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.

Not to cheerlead the dollar, but our situation is different from a backwater former soviet satellite. Profoundly different. I don't say that happily--the destruction of that dollar to cover the crimes of a bankster mob is a tragedy. But I seem to have little say in such matters.

The catalyst for the country's imploding economy: socialism and price controls. Sound familiar?

The deflationist arguments are a triumph of theory over reality. We will not have extended deflation.

The latest argument seems to be that we won't have hyperinflation because the wealthy and the Fed won't allow it. Why do deflationists assume the Fed has any control at all over the situation? It's out of the Fed's hands.

Hyperinflation is misnamed anyway. It should be simply called "currency collapse". It's a panic out of a currency (see Belarus, 2011).

We've already in effect HAD hyper-inflation since 1913, we just had it over 100 years, instead of 100 days. The next 95% devaluation will happen quicker.

A flight from the dollar has of course begun, and will accelerate once the Chinese and others decide to trade most of their pieces of US paper in a vault for energy and food, so they won't end up like the ruler of Tunisia.

The latest argument seems to be that we won't have hyperinflation because the wealthy and the Fed won't allow it. Why do deflationists assume the Fed has any control at all over the situation? It's out of the Fed's hands.

(the following is the reply - cannot disable italics because comment-software is bugged)

to be fair, that argumentation style DOES fit to SOME (not all) ZH posters, who are in a weird love/hate relationship with their overlords - after all, they are super-perfect and rational gods, so if something is stupid, why would they do something stupid?

Still, i do someway agree with your conclusion. I'm not sure if every currency in the line of fire will be destroyed via hyperinflation.... i am however certain, that rapid inflation will be one part of the process that will trigger trashing of the currency.

Everything collapsed in deflation in 1929. But then FDR confiscated gold in 1933 and the government promptly revaluated gold -- 40% higher.

Wasn't that effectively a government sponsored devaluation of the USD? Thoughts, asking.

Also, seems the default position of the central planners is to always inflate their way out of crises to keep reserve ratios legally adequate and because it is much harder to tax deflation. Taxes make their world go round.

The Feds stated goal is to inflate their way out. I guess the question may be, can they inflate fast enough to prevent deflationary collapse? The massive derivatives market (>600 Trillion USD) is a relatively new phenom. Since it's a dark market, and the cloaking device works pretty well, I'm not sure how that house of Ponzi cards will fall. I just know it's a squid squisher and it's got them spooked, for sure. Thoughts, asking.

Try Chris Hedges, although you might need someone to explain it to you.

I've known piles of "Libs" who are smarter than anything you've posted here.

You might consider wandering a little further than the trailer park and 7-11 for smokes and beer. Then you might run into people who are liberal and smart. However, in your defense, I'm not sure you are capable of actually comprehending a smart person of any political persuation if you did encounter one.

Thank you for once again proving to me that Libs are almost always, in every way, much better and more decent people who are infintely more interesting and witty than know-it-all, know-nothing Conneds like you. Again, such folks are beyond your comprehension to understand, so feel free to wallow in your own ignorance...you have the right to do so thanks to Libs. HAHA!

I see you guys are still running with the lib/con, rep/dem distraction. Have you heard of the new ideologies spreading like wildfire? Tweedle Dee vs. Tweedle Dum are rocking out with their cocks out, get on it.

As the PMs emerge as a medium of exchange and store of value......prices in terms of PMs will go down !!! As fiat and fiat credit are inflated......prices in terms of fiat will go up !!! It will be like a wedge of cold Canadian air lifting up a wave of hot moist Carribean air ! The hot moist air rises and cools and collapses and sucks up everything in a maelstrom of tornadoes, lightning and rain ! Maybe it wasn't necessary to paint that picture ! I guess I mean there will be simultaneous inflation and deflation as the PMs (cold Canadian air) displace fiat (warm moist Carribean air) ? Monedas 2011 I never claimed to be an economist !

I think someone earlier on summed up the situation brilliantly when commenting on the 'fiatness of the system vs the fractional reserveness of the system'...cash vs credit. One dwarfs the other, and that is where the pressure release valve will go off=deflation. Just my view.

There are some nice debates here about deflation vs. inflation. I'm not sure which we will see, but I'm guessing both.

From my observations of history and present day life in this country, we will get whichever of these two that will keep as much wealth and power in the hands of those who currently have both for as long as possible. How either inflation or deflation might affect the average working folks will have no bearing whatsoever in their decisions.

If too much deflation allows the peons to walk away from the their debt slavery, it will not happen if they can avoid it. Yet, if too much inflation hurts their wealth and power due to being paid with worthless paper, we will not have it either.

My guess is we will muddle through for as long as possible with the Powers That Be doing all they can to maintain their wealth and power, and that of their owners, while making any needed adjustments with insider knowledge, something the rest of us won't have. I will bet my own money according to this model using any information I can find.

For anyone who wants to know how to cope (plan) for an economic collapse, the best way is to investigate what people in other countries have done in the past and to watch Belarus. Google and check out examples such as Argentina, Russia, Mexico, Iceland. Weimar is a very extreme example but who knows. Those that know what is coming, and who network, and make plans fair the best.

I've looked at this topic over the years. Dmitry Orlov covers the Russian collapse pretty well and has made several comments about a potential collapse in the US. However, one difference he does point out is the concept of Private Property here in the US. Heavy individual debt coupled with nearly everything in this country being private property adds a different dimension to a collapse in the USA. That, plus the sense of rugged individualism here in the States instead of us possibly working together through the collapse (gasp! it might be consider communism to do such a thing) could lead to so seriously interesting times here. Maybe not, but it's a consideration.

Yep, think West will do better too. It'll onlyy be as bad as central planners make it. Worry is, the more they drag it out, the worse the required correction will be. Methinks they are looting the Titanic before they kick the women and children our of the lifeboats.

Western democracies with private property and sense of entrepenuership will no doubt fair better and be less violent. Many of the same private charitable groups who helped others in the past will continue to step up and expand their efforts. The government orgs will not be there.

I fear for our urban parts of the country run by the party of Marx. They'll find no amore' when the Utopian Mysticism falls from the sky, like a big pizza pie.

BTW, is Orlov the guy who predicted the USA would break up into 5 regions, or the guy who worked with dogs? (snort...!)

Oh, puh-leez. Stop with the Keith Olberman approved sterotypes already. Recall, he was the one that was booted for being most of those things.

You might have also included: hard working, productive, tax paying, law abiding, and self reliant.

Here's the facts: conservatives earn 60% more college degrees than democrats (every single year since 1955 when records first kept), pay more taxes, less likely to cheat on their taxes, give more to charity (by far) and are more tolerant of other groups and demographic profiles -- except violent anarchists.

It's obvious, and not even counterintuitive when you strip away the liberal propagandavision -- that's why democrats need endless free stuff from the government at others' expense all the time and fill up our prisons. 95% of prison inmates identify with the democrat party. Our prisons are not bristling with evangelicals running around thumping people instead of bibles.

In fact, the gap is so large that if democrats stayed in school and kept up with the other side, they would create the utopia they seek. There would be no national debt and social problems would be nil.

A career criminal contributes to society -$2 million per lifework vs. +$2 million per lifework for a college grad = net $4 million delta. The USA has about 5 million career criminals (excludes banksters!).

It's funny how much I hear conservative saying over and over again how much happier they are, when all they do is bitch and moan about non-conservatives...incessantly. But then, perhaps that is one of the things that makes them happy.

It's funny how my life experience has been completely counter to those stats.

Sneetches are a group of vaguely avian yellow creatures who live on a beach. Some Sneetches have a green star on their bellies, and in the beginning of the story the absence of a star is the basis for discrimination. Sneetches who have stars on their bellies are part of the "in crowd," while Sneetches without stars are shunned and consequently mopey.

In the story, a character named Sylvester McMonkey McBean, calling himself a "fix-it-up chappie," appears, driving a cart of strange machines. He offers the Sneetches without stars a chance to have them by going through his Star-On machine, for three dollars. The treatment is instantly popular, but this upsets the original star-bellied Sneetches, as they are in danger of losing their method for discriminating between Sneetches. Then McBean tells them about his Star-Off machine, costing ten dollars. The Sneetches formerly with stars happily pay the money to have them removed in order to remain special.

However, McBean does not share the prejudices of the Sneetches, and allows the recently starred Sneetches through this machine as well. Ultimately this escalates, with the Sneetches running from one machine to the next,

"until neither the Plain nor the Star-Bellies knew

whether this one was that one... or that one was this one

or which one was what one... or what one was who."

This continues until the Sneetches are penniless and McBean departs a rich man, amused by their folly. Despite his assertion that "you can't teach a Sneetch," the Sneetches learn from this experience that neither plain-belly nor star-belly Sneetches are superior, and they are able to get along and become friends.

I believe privatization and fire sale of state assets as well as the assets of broke citizens was the goal all along, this is going to happen in America but not until every American has been completely strip-mined of all their capital and ability to earn a living, then the fire sales begin and millions of new foreign "landlords" will pop up everywhere along with millions of foreigners all willing to work for less than any American.

Oh ya the elite foreign land & capital owners will all enjoy tax privileges that Americans don't as is already the case with the use of imported foreign workers which are exempt from SS taxes but eligible for benefits and subsidies should they need them.

To the hyperinflationists... should I load up on as much debt as possible now and buy physical? $ backed debt will be super cheap to pay off in the future. Should I take out HELOC, max out all my credit cards and wait?

To the deflationists... When will I see the price of assets, other than housing, come down? Will gas be cheaper next week? will food be cheaper next week? What do I eat in the meantime? iPad2? Should I go long bonds, even at 0% interest, since my real rate of return will be positive?

Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products. (End Paste)

they have this thing with the russians, eh?

one might ask why they devalued before taking down the heretofore guaranteed loans? $800 mil on tap, year 1 of 3 years? huh?

the loan oligarch bankster consortium will get the xtra cash flow right off the bat, i wld think, when the loans get funded. wouldn't you think? these bela's want to spend the $800 mil in this lifetime, do they not?

a good bankster will now to use the annuitiZed loan payments, with the extra bela stamps, to purchase "state" assets, such as may be useful. with the depreciated currency, certain hard-to-sell exports may become "cheaper" internationally.

who knows? the people are probably in shock. depending on their circumstances, of course. PMs probably ok, wldn't you think?

Wow have government agents infiltrated Zerohedge? I've never seen so many deflationists around here. I've still yet to hear a really convincing argument for deflation. All signs point toward inflation. The path of least resistance is inflation. Banking on deflation is like trying to short the S&P since QE drove it sky high. Many were left flattened stepping in front of that steamroller.

To have deflation first and foremost the criminals in D.C. have to stop taking on debt and spending money. Unfortunately the lobbies that benefit from all that debt are firmly entrenched and there's nothing we can do to cut them loose. Plus there are millions (probably hundreds of millions) of people who depend on handouts either because they were promised handouts (social security) or because they are simply destitute (welfare, etc.).

If you're a short-sighted, mentally-handicapped politician, are you going to get elected running on a platform of cutting social security, medicare, medicaid, welfare, and military spending? Most couldn't even get away with cutting military spending since 9 out of 10 voters are convinced the most grave threat to their safety is some boogeyman overseas yet to be murdered.

So yes, if the people suddenly wake up and realize they're fucked sooner or later and opt to get fucked sooner, and thus elect politicians who agree to do the fucking, and the Fed is forced to allow things to play out, then we will get deflation, and a horrendous butt-fucking deflation the likes of which the world has never seen.